Where Will Algeria's Election Season Leave Its Oil And Gas?

Last week, Algerian President Abdelaziz Bouteflika announced he would be running for a fourth term in office despite a host of personal and political obstacles. At 77, Bouteflika is still recovering from a stroke last year, keeping him mostly out of the public eye for months and is now running for a term that would have him in place beyond the age of 80. Beyond health concerns, the long standing Bouteflika is looking for stable support in a country where 46 percent of the population (the second largest in the Arab world) is under the age of 24, many of whom are frustratingly unemployed.

Professionally, Bouteflika is facing an increasingly contentious split between Algeria’s military and intelligence services, making it difficult to tell just who will support the President should he win again. Over the last several months, the previously unified army high command and the country’s department of intelligence and security have been at odds, leading to allegations of corruption and dismissals. Until Bouteflika announced his intention to run, the tension was viewed as two of the country’s most powerful forces vying for leadership after the President was gone.

To be completely clear, if Bouteflika’s health holds up, he will most certainly win. According to a Financial Times report, the system has been “rigged in favor of the president and against any reformer”, making it nearly impossible for any opposition movement or candidate to gain traction during election season - or really ever. Countless reports have painted a nearly impossible, “kafkaesque” environment for opposing candidates who see support, funds and accessibility evaporate as soon as they announce their intention to run.

However, this does not mean the election will proceed as smoothly as years past and this could create serious problems for the country’s battered, but vital oil and gas sector.

Africa’s second largest oil producer behind Nigeria, Algeria’s oil production stood at 1.14 million barrels per day in November of last year, down 15% from 2005-2010 averages. Meanwhile, the country’s gas production has declined steadily since 2005 to 2.9 trillion cubic feet in 2011. This pattern has left the country’s reserves mostly unchanged over the last decade, with coveted exports to Europe continuing to decline. The loss of interest on the part of foreign partners and its impact on production levels would be of concern in any country, but Algeria’s is of grave concern considering the country’s heavy dependence on oil and gas for 97 percent of their export revenue and substantial amounts of government operations and spending.

The industry decline, explained Abdelhamid Zerguine, head of Algeria's state-backed energy firm Sonatrach , was due to the country’s awarding of some permits to small operators that did not have the “financial capacity” to meet the requirements of local projects, leaving them “overstretched”.

Beyond the official government response, the energy sector’s troubles have been attributed to an increasingly inhospitable climate for foreign investors, made worse by a series of corruption investigations related to Sonatrach, which holds a 51 percent minimum stake of all energy projects. Calls for a reassessment of the country’s approach to revenue sharing and taxes finally resulted in legislative action last year, though reforms were limited to supporting offshore and shale efforts in the country.

The landscape for foreign firms worsened last year when regional unrest spilled over Algeria’s borders in the form of an armed attack on a BP-Statoil held gas facility near the Libyan border. The January 2013 attack and military response left dozens dead and some companies reassessing their presence in the region - or at least their willingness to field international staff. The effect of this uncertainty can be seen most clearly in the modest interest from foreign firms during the country’s last two licensing rounds.

This landscape is unlikely to improve under current conditions and could even deteriorate if national elections add further stress to an already fractured national leadership, making Algeria an increasingly difficult bet for needed foreign investors.